CBRE (Agency) Limited v Warner

[2023] NZHC 3401

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2022-009-1140

[2023] NZHC 3401

BETWEEN

CBRE (AGENCY) LIMITED

Plaintiff

AND

AND

KENNETH WALTER WARNER

First Defendant

KAREN DAWN WARNER

Second Defendant

Hearing:	16 November 2023
Appearances:	T B Fitzgerald for Plaintiff C J Shannon for Defendants
Judgment:	28 November 2023

JUDGMENT OF ASSOCIATE JUDGE LESTER

CBRE (AGENCY) LTD v WARNER [2023] NZHC 3401 [28 November 2023]

[1]                 The plaintiff, CBRE (Agency) Limited (CBRE) assisted the first and second defendants (the Warners) in the sale of their property at 170 Prestons Road, Christchurch (the property). The property is a 6.573 hectare block on which there is a large architectural home.

[2]                 CBRE claims to have introduced a buyer, Avanda, associated with a Mr Ye, resulting in an agreement for sale and purchase dated 14 January 2021 (the contract).

[3]                 CBRE issued proceedings against the Warners as they refused to pay the commission. The Warners eventually counterclaimed alleging in the first cause of action various breaches of a duty of care to provide appropriate advice in relation to the marketing of the property. These breaches are claimed to have resulted in the property being sold for less than market value.

[4]                 The second cause of action in the counterclaim is breach of fiduciary duty. As presently pleaded, this asserts that another company of Mr Ye, Grand Arc, had prior to Avanda’s purchase of the property, already purchased 140 Prestons Road, Christchurch, which is next to the property and that CBRE knew, or ought to have known, of the connection between Grand Arc and Avanda. The Warners say that information would have been relevant to them when selling their property.

[5]                 The claim and counterclaim are set down for hearing on 27 May 2024. The close of pleadings date was 4 August 2023.

[6]                 On 9 October 2023, the Warners applied for leave to file an amended counterclaim and for particular discovery against CBRE. The applications are opposed.

Discovery

[7]                 Two real estate agents at CBRE who assisted the Warners in selling their property were Messrs Brown and Davies. Mr Davies no longer works for CBRE.

[8]                 The application for further and better discovery essentially sought all documents relating to Mr Davies’ involvement with the property, Mr Ye and Avanda. The discovery application is widely framed.

[9]                 The opposition relies on the presumption that the list of documents CBRE has already provided is complete. CBRE says its affidavit confirms that a diligent search for documents has been undertaken.

[10]Mr Davies’ email account became the focus of the application.

[11]             Mr Brown swore the list of documents on 12 June 2023 in which he described the steps taken by CBRE in order to fulfil its discovery obligations. Mr Brown says:

CBRE searched its records for correspondence between me and/or Merv Davies (the other agent involved in this matter) and the defendants. This comprised a retrieval of emails to/from the email addresses of [Mr Brown] and [Mr Davies].

[12]             The notice of opposition to the discovery application asserts that Mr Davies’ email inbox was deleted in the ordinary course of business.

[13]             There is a disconnect between the affidavit of Mr Brown saying there has been a retrieval of emails and CBRE’s present position that Mr Davies’ emails were deleted in the ordinary course of business.

[14]             Mr Fitzgerald, counsel for CBRE, submitted the discovery application came after the close of pleadings date with no real explanation for its late filing and should be declined. Mr Davies’ emails were sought on 5 July 2023. Close of pleadings was 4 August 2023. CBRE’s solicitors did not reply to the call for Mr Davies’ emails until 19 August 2023. Until the Warners knew their call for Mr Davies’ emails would be declined, there was no point them making an application to the Court. Counsel are expected to resolve discovery issues between them, with an application being a last resort.

[15]             Mr Fitzgerald also submitted that CBRE in its 19 August 2023 letter had explained that Mr Davies’ emails were not available. However, the apparent

discrepancy between Mr Brown’s evidence as to the retrieval of Mr Davies’ email is not adequately answered by the brief assertion in the letter of 19 August 2023, that Mr Davies’ emails are not available.

[16]             I am satisfied it is appropriate there be leave for the application in respect of discovery.

[17]             I am satisfied the disconnect between what Mr Brown said about the retrieval of Mr Davies’ emails and the claim that Mr Davies’ emails are no longer accessible, requires an explanation.

[18]I make the following orders:

(a)Within  10  working  days,  CBRE  is  to  provide  an  affidavit  from  a suitably qualified person explaining:

(i)CBRE’s policy for the deletion of emails “in the ordinary course of business”;

(ii)whether backups of emails are available despite the deletion of the email inbox and, if backups are not kept, whether there is any further possibility of recovery of the deleted emails;

(iii)when the emails were deleted and by whom;

(iv)the use of the term “retrieval” in Mr Brown’s discovery affidavit and why if some emails were retrieved for the purposes of preparing the discovery affidavit, what has become of the retrieved emails and why other emails could not be retrieved; and

(v)CBRE’s data protection policy, to the extent it is relevant to the issue of Mr Brown’s emails.

[19]             If it proves to be the case that Mr Davies’ deleted emails can be retrieved, then counsel are to confer as to the next steps as Mr Fitzgerald wished to avoid a fixed timeframe for any further discovery as he was not sure how long retrieval may take.

[20]The balance of the discovery application is adjourned.

Application to amend counterclaim

(a)First cause of action

[21]             The first cause of action as noted is in negligence.  The Warners wish to add  a further instance of negligence that CBRE failed to explain and recommend to them that they should have obtained a geotechnical engineering report in order to understand how ground conditions could influence the value of the property as any prospective developer purchaser would purchase subject to due diligence which would include geotechnical investigations.

[22]             Further instances of negligence which the Warners wish to add are that CBRE failed to provide the Warners with ongoing market advice including not recommending that the Warners delay the sale of the property until mid-2021 due to rising market conditions, and failing to provide any guidance on the value of the property including guidance or advice in relation to the offers received by the Warners and any counter offers the Warners made or considered making.

[23]             The Warners say had the pleaded advice been provided, they would have taken it, including delaying the sale of the property.

[24]             Mr Shannon, counsel for the Warners, in support of the application submitted it was only with the briefing of expert evidence that CBRE’s failure to recommend obtaining a geotechnical engineering report could be a further breach of duty which came to light. Mr Shannon submitted that given the statement of claim involves pleadings as to the nature of a real estate agent’s duty and allegations of what amounts to a breach, it was reasonable to assume that CBRE would be calling expert evidence in respect of those issues. Mr Shannon advised the Warners would be calling expert evidence.

[25]             Mr Fitzgerald suggested in his reply that one instance of prejudice to CBRE was that it would, as a result of the proposed amendment in respect of the geotechnical advice, now have to obtain expert evidence, suggesting that CBRE did not have an expert already on hand. Given the Warners’ evidence, which is late as I shall address below, will include expert evidence whether the amendment is granted or not, briefing of an expert by CBRE is likely to be called for unless it wishes the Warners’ expert evidence to go unchallenged, which seems an unlikely prospect.

[26]             As to the further allegations about CBRE’s failure to provide ongoing market advice including the possibility of delaying the sale of the property and failure to provide guidance on the value of the property, those matters would also need to be addressed by the expert evidence given they put in issue what a reasonable real estate agent would have done in the circumstances.

(b)Second cause of action: breach of fiduciary duty

[27]             The present pleading is that Grand Arc, a company of Mr Ye, had already purchased the property neighbouring the Warners’ property, prior to Avanda, another Mr Ye company, purchasing the Warners’ property. It is pleaded that CBRE had, or ought to have, carried out enquiries of neighbouring properties and neighbouring developers and  that  CBRE  knew,  or  ought  to have  known,  that  Grand Arc  was a company related to Avanda.

[28]             The proposition underlying this cause of action as presently framed, is that it would have been material to the Warners in negotiating with Mr Ye to know that he had already purchased a large neighbouring block of land, indicating he was putting together a large development block.

[29]             The difficulty for this pleading as it stands is that it is now common ground that Grand Arc had not purchased 140 Prestons Road at the time Avanda purchased the property on 14 January 2021. Grand Arc did not purchase 140 Prestons Road until about mid-2021 and it went on to purchase 180 Prestons Road in mid-late 2021.

[30]             The proposed new pleading is that: “CBRE knew, or ought to have known, that Grand Arc (as a related entity of Avanda/Top Bay) was interested in acquiring land around the Property.”

[31]             The allegation that Grand Arc had already purchased the neighbouring property at 140 Prestons Road is deleted.

[32]             Thus, the facts pleaded shift from more strongly supporting Mr Ye putting together a development parcel because he had already bought 140 Prestons Road, to Mr Ye, through different entities, being “interested in acquiring land around the Property.”

[33]             It is in relation to this issue that the Warners  are particularly interested  in  Mr Davies’ emails.

[34] The proposed amendment set out at [30] above pleads both actual knowledge and constructive knowledge. Rule 5.17(3) of the High Court Rules 2016 (the Rules) provides: “A state of mind includes a mental disorder or disability, malice, or fraudulent intention but does not include mere knowledge.”

[35]             McGechan on Procedure states: “Allegations of any state of mind other than mere knowledge require factual particularisation.”.1

[36]             Referring to the equivalent of r 5.17 in the District Court Rules 2014 (r 5.20), the authors of District Court Practice (Civil) say:2

Apart from an allegation that a party knew a fact, any allegation of a state of mind must be backed up by pleading the facts which are relied on to support the alleged state of mind.

1      Robert Osborne and others McGechan on Procedure (online ed, Thomson Reuters) at [HR5.17].

2      Stephen Harrop (ed) District  Courts  Practice  (Civil)  (NZ)  (online  ed,  Lexis  Nexis)  at  [DCR 14.5.20.3].

[37]             Similar comments are made in Sims Court Practice:3 “There is no need to give particulars of an allegation of actual knowledge …”.  Referring  to  Marshall  Futures Limited v Marshall, in that case, Tipping J said: 4

R 181(2) should also be noted:

(2)Where a party pleading alleges any condition of the mind of any   person, whether any disorder or disability of mind or any malice, fraudulent intention or other condition of mind except knowledge, the party pleading shall give particulars of the facts on which that party relies in alleging that condition of mind.

This provision is a new and salutary one in the rules. It is designed to inform the Court and defendants of the basis upon which the condition of mind in question is alleged.

Knowledge is excepted from the general requirement. That is understandable because the word “knowledge” in R 181(2) is dealing with actual knowledge. A pleading that a defendant has knowledge is, in the absence of any other indication, to be construed as an allegation of actual knowledge. If some form of constructive knowledge is alleged then in my view that should be properly pleaded and particularised.

(emphasis added)

[38]             Here, as I have noted, the pleading is a mixed one being both of actual and constructive knowledge. No particularisation of the constructive knowledge component of the pleading has been included in the proposed draft amended statement of claim.

[39]             The Court can, on its own initiative, require a more particularised pleading.5 During the hearing I raised with Mr Shannon what matters were relied on to support the allegation of constructive knowledge. Mr Shannon was frank enough to acknowledge that the Warners were dependent on material coming from Mr Davies’ emails. In short, Mr Shannon was not in a position to provide particulars.

[40]             I decline leave for the statement of counterclaim to be amended to the extent paragraph 26.3 of the draft amended counterclaim refers to constructive knowledge. The Rules are clear that such a pleading would require particulars. It is also clear that

3      Matthew Casey (ed) Sims Court Practice (looseleaf ed, Lexis Nexis) at [HCR5.17.4).

4      Marshall Futures Limited v Marshall [1992] 1 NZLR 316 (HC) at 335.

5      High Court Rules 2016, r 5.21(4).

the Warners cannot at the moment provide particulars. How the Warners will prove actual knowledge is an issue for trial but is a matter the Rules do not require them to particularise, albeit it is clearly a matter requiring careful consideration before this aspect of the counterclaim proceeds. However, I reserve leave for the Warners to apply further to include a constructive knowledge element to the pleading should Mr Davies’ emails become available and if they support a constructive knowledge claim. In those circumstances, CBRE could not complain of a late amendment given the late disclosure of Mr Davies’ emails.

[41]             CBRE confirmed in Mr Brown’s evidence, in the affidavit of documents, that it took steps to retrieve Mr Davies’ emails thereby acknowledging the relevance of Mr Davies’ emails. Emails between Mr Davies and Mr Ye, or entities associated with Mr Ye, prior to the Warners selling the property were all likely to be relevant given the general thrust of the Warners’ allegations that CBRE did not take reasonable steps to obtain the best price reasonably available for the Warners’ property.

[42]             Accordingly, the application to amend the counterclaim is granted save to the extent that the proposed paragraph 26.3 includes constructive knowledge.

[43]             The other amendments are allowed to ensure the real controversy between  the parties goes to trial.6

[44]             I am not satisfied there is any real prejudice to CBRE in the amendments proposed to the negligence cause of action. That is particularly so when the constructive knowledge allegation  in  the second cause of  action  is removed for  the reasons I have given. Mr Fitzgerald complained of the Warners’ case shifting since CBRE sought to recover its commission, suggesting the Warners’ case changed for tactical reasons. That in itself does not demonstrate prejudice to CBRE beyond frustration.

[45]             The Warners will have to consider seriously their pleading of actual knowledge in the proposed paragraph 26.3 in the amended counterclaim. If the Warners are unable to establish the knowledge they plead, particularly given Mr Shannon’s

6      Shanton Apparel Ltd v Thornton Hall Manufacturing Ltd [1989] 3 NZLR 304 (CA) at 309.

acknowledgment referred to at [39] above, that may be relevant to costs. However, at the moment the Warners have not filed their evidence in support of their counterclaim. It is inherent in CBRE’s position that it did not have knowledge the Ye interests were interested in acquiring property around the Warners’ property at the time CBRE was acting for the Warners. If that is their case, then providing evidence in that regard is not going to create any further significant prejudice to them.

[46]             While the merit of a proposed amended pleading is a relevant factor in determining whether to grant leave,7 that factor has come into play already in relation to the refusal to grant leave in regards to the proposed paragraph 26.3 to include constructive notice. The claim of actual knowledge complies with the Rules albeit, as I have commented, the Warners will need to consider their ability to prove actual notice as recognised by Mr Shannon.

[47]             I am satisfied that any prejudice that may accrue to CBRE as a result of the amendments can be compensated for by costs should these claims fail. As I have said, no doubt the Judge fixing costs will take into account the Warners including a claim they are unable to prove, but that is an issue for another day. The hearing is not until 27 May 2024. While the Warners’ evidence is late, CBRE’s evidence was also late. However, a straight two week adjustment to reflect CBRE’s lateness would prejudice CBRE as it would shift CBRE’s time for a response to the middle of the Christmas/New Year period. I have reflected that in the amended timetable set out below.

[48]Accordingly, paragraph 26.3 of the proposed amended pleading will now read:

CBRE knew that Grand Arc, prior to 14 January 2021 (as a related entity of Avanda/Top Bay) was interested in acquiring land around the property.

[49]             As to the proposed amendment aimed at adding a failure to recommend the Warners’ commission, a relevant specialist report, paragraph 9 of the proposed amended  pleading,  is  open-ended  as  it  simply  refers  to   “specialist   reports”. Mr Shannon confirmed the amendment was only intended to apply to CBRE

7      Fordham v Xcentrex Communications Ltd (1996) 9 PRNZ 682 (HC) at [683].

recommending that the Warners obtain a geotechnical engineering report. Paragraph 9 is to be amended accordingly.

[50]             The paragraphs in respect of what CBRE did and did not say to the Warners and what CBRE’s duties as a reasonable real estate agent were, will not cause CBRE any prejudice. Canvassing these issues in its reply evidence will not add significantly to its burden.   Notwithstanding Mr Fitzgerald’s claims that CBRE will have to, as    a result of the amendment, only now instruct an expert, I have already commented that it seems highly unlikely that CBRE was going to respond to allegations as to the obligations on a reasonable real estate agent in this situation without expert evidence. If I am wrong in that assumption and if identifying a relevant expert causes difficulty for CBRE, then leave is reserved for it to revisit the timetable set out below.

Amendments to timetable

[51]             The following timetable amendments are made with reference to the timetable contained in Associate Judge Paulsen’s Minute of 4 April 2023.

(a)The date for the defendants’ briefs of evidence in opposition to the plaintiff’s claim and in support of the defendants’ counterclaim is to be filed and served by Thursday 30 November 2023 (Mr Shannon advising during the hearing that this evidence could  be filed within  10 working days).

(b)The plaintiff’s evidence in reply is to be filed and served by Wednesday 31 January 2024.

(c)The defendants’ evidence in reply is to be filed and served by Friday 16 February 2024.

[52]             I note Associate Judge Paulsen’s timetable at [5](k) provided for expert conferral, somewhat undermining Mr Fitzgerald’s submission in respect of prejudice in respect of the briefing of an expert. The expert conferral is to now be completed by Friday 29 March 2024.

[53]The balance of Associate Judge Paulsen’s timetable remains in force.

Costs

[54]             As to the costs of this application in respect of the application to amend the statement of claim, on the one hand the defendants have been granted an indulgence, being permitted to make an application after close of pleadings. On the other hand, the defendants have had success against opposition, albeit not a complete success. In respect of discovery, whether there is further material to come is yet to be seen. However, as I have said, the circumstances in relation to Mr Davies’ emails did call for an explanation.

[55]             My immediate reaction is that costs should lie where they fall. If any party wishes to apply for costs they are to do so within five working days by memorandum of not more than three pages. If no memorandum is filed, the order of the Court is that costs will lie where they fall.

Associate Judge Lester

Solicitors:

Duncan Cotterill, Christchurch Bell Gully, Auckland